De Grey Mining scoping study outlines potential for regional deposits to increase Hemi production to up to 700koz a year
Mining regional deposits will deliver attractive returns including pre-tax cashflow of $400m over six years with capex funded from Hemi operating cashflow
Potential also exists to further grow resources at the regional mining centres
Special Report: While the giant Hemi gold deposit is rightly the focus of De Grey Mining’s development efforts, a scoping study over regional deposits has outlined potential to enhance its long-term production profile.
A definitive feasibility study for Hemi in WA’s Pilbara region last year suggested the mine will produce 530,000oz of gold a year over its first decade, though that only includes initial open pit resources whilst DEG is still exploring in and around the existing resource.
Resources at the Hemi, Withnell (WMC) and Wingina areas (EMC). Pic: De Grey Mining
Adding further to the already clear attractiveness of developing Hemi, DEG has now released a scoping study presenting a strong financial and technical case for developing regional Hemi deposits with initial capex of about $210m to be met from operating cashflow.
The regional deposits comprise mining centres located around the Wingina deposit to the east of Hemi (EMC) and around Withnell to the west (WMC), which have resources of ~0.5Moz and ~1.7Moz respectively.
Mining of this combined measured, indicated and inferred resource of 41Mt at 1.7g/t gold – or 2.2Moz of contained gold – is expected to deliver ~817,000oz of gold over an initial evaluation period of six years.
This could increase global production from the project area to ~700,000ozpa from the fourth year of operations.
AISC of mining the regional deposits is estimated at a low $1,820/oz while free pre-tax cashflow over the evaluation period has been forecast at about $400m, delivering pre-tax NPV and IRR – both measures of profitability – of $300m and 43% respectively.
Like the Hemi DFS, the regional scoping study was calculated using a conservative gold price of $2,700/oz.
Production increases from regional production. Pic: De Grey Mining
“Hemi represents a provincial scale exploration and production opportunity and the company is actively assessing ways in which the long-term production profile of the project can be enhanced over and above the Hemi DFS production profile outlined in September 2023,” managing director Glenn Jardine said.
“The Hemi Regional Scoping Study provides an important initial evaluation of part of this potential to both extend and increase the production profile.
“The proposed 10 million tonne per annum pressure oxidation circuit at Hemi is a regionally strategic asset that has the potential to treat additional oxide ores and gold concentrates from outside of the main Hemi deposits.
“The 2.2 million ounce Hemi regional mineral resource is an obvious first source of additional feed and this initial study outlines how an integrated development of the Hemi regional deposits could be both technically and financially attractive.”
He added that there’s flexibility in both the timing and sequencing of developing the regional deposits, which will be further examined in additional studies.
In the meantime, DEG will continue to carry out targeted exploration for more regional discoveries and carry out extensional drilling at selected existing deposits to improve the scoping study outcomes.
“Our strategy is to time the development of the Hemi regional project utilising cashflow generated from the fully commissioned Hemi project, while also bringing forward cashflows from the Hemi regional deposits as soon as practicable,” Jardine added.
“The Hemi regional deposits will not displace any material from Hemi but aim to utilise the expected latent capacity within the front and back ends of the Hemi plant.”
The story so far
A definitive feasibility study for Hemi in WA’s Pilbara region last year suggested the mine will produce 530,000oz of gold a year over its first decade, though that only includes initial open pit resources whilst DEG is still exploring in and around the existing resource.
With all-in sustaining costs (AISC) estimated at a low $1,295/oz on an assumed gold price of $2,700/oz, this is enough to generate post-tax cash flow of $4.5bn and an attractive IRR of 36% for De Grey Mining (ASX:DEG).
This is decidedly conservative as the Australian gold price currently hovers around the $3,500/oz mark.
Ongoing exploration has also backed the company’s belief about the provincial scale of Hemi with recent extensional drilling yielding high-grade hits such as 4.6m grading 31.8g/t gold and 20.4m at 4g/t gold that extend the Eagle deposit down plunge by at least 200m.
Meanwhile, limited drilling along strike at Diucon returned intercepts such as 2.5m at 3g/t gold from 383.4m.
This led the company to note in late June 2024 that additional resources in this area could allow for the expansion and deepening of the proposed Diucon and Eagle pits while potentially supporting underground mining in the future.
Progress towards developing Hemi is likely to be rapid with the company having already raised $514m through a placement of shares to institutional investors and major shareholders back in May.
Along with another $85.6m that it raised through an underwritten offering to retail shareholders, the company now has more than $900m in cash, which is more than enough to fund the equity part of the mine development.
It has also received credit approved terms for $1bn in debt funding with a $130m cost overrun facility from domestic and institutional finance institutions while government credit agencies – the Northern Australia Infrastructure Facility and Export Finance Australia – are in the final stages of considering their participation in the lending syndicate.
Regional deposits
The Wingina and Mt Berghaus deposits at the EMC are located on granted mining leases about 15km east of Hemi.
Mineralisation at both deposits are hosted in free milling oxide ore, which are proposed to be hauled and processed through the Hemi processing facility whilst sharing Hemi infrastructure and personnel where possible.
Throughput at the EMC has been limited to 1Mtpa on the assumption that debottlenecking over the first three years of production at Hemi will achieve increased throughput of at least 10% based on the innate conservatism of the company’s DFS.
Development of the WMC will be a little more involved with DEG’s scoping study including the establishment of a regional processing facility at Withnell about 95km by road from Hemi.
This Western Processing Hub (WPH) is currently envisioned as a nominal 3Mtpa processing facility on granted mining leases.
It will comprise primary and secondary crushing, milling and pebble crushing, gravity concentration, flotation, concentrate filtration, carbon-in-leach (“CIL”) pre-treatment blanking circuit, and a CIL leaching circuit.
Free milling ores from the WMC will be treated wholly on-site at the WPH to produce gold doré while refractory ores will be treated via flotation, with the flotation concentrate being filtered and transported to the Hemi processing facility for further treatment to produce gold doré there.
Concentrate storage and repulping facilities at Hemi are included within the scoping study capital cost estimate.
Further upside
DEG noted the study represented a good start to capitalise on potential resource upside, particularly associated with the Withnell-Calvert trend and a solid base upon which to follow up on historical exploration data to increase the existing regional resource base.
The Withnell trend extends from west of Dromedary to east of Withnell over 6km of prospective strike and includes existing deposits such as Withnell, Camel Roe and Dromedary.
At the Withnell deposit, new lodes were recently discovered at Withnell South along with potential extensions to some Central Withnell lodes, neither of which have been included in the study but will be incorporated into an updated resource estimate that is currently planned for completion during 2024.
Likewise, 2021 drilling at the Calvert deposit that extended mineralisation downdip by over 200m has not been included in the current resource model while reverse circulation drilling at the Mallina deposit is expected to show incremental increases to the current resource.
Over at the EMC, Mount Berghaus has only been tested to shallow depths, with most drilling testing less than 100m deep, and is open at depth.
Recent aircore drilling on a separate trend north of Mount Berghaus has returned anomalous gold values over a strike of around 6km and has the potential to host additional deposits.
Next steps
Based on the compelling results of the regional scoping study, DEG’s board has approved additional project optimisation, exploration and technical studies by a dedicated team to advance the regional project prior to first gold production at Hemi.
Follow up workstreams required to support submission of applications for environmental permits for project development are also proposed to be undertaken during the pre-feasibility study.
The company adds that submitting a mining proposal for a mining and processing facility at Withnell is currently considered the shortest route to the approval of a production facility.
This article was developed in collaboration with De Grey Mining, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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